The Price of a Threat: How Social Identity Threat Influences Price Sensitivity

João is a reliable worker in a low-pay but quite stable job. Nonetheless, João is black, uneducated, and lives in a favela. No wonder he is highly sensitive to cues that threaten one or multiple dimensions of his social identity and that makes it clear that racial segregation is well and alive in the city. Cues that, whenever possible, he tries to avoid. Given the financial constraints, standard economic theory and sheer intuition would predict consumers like João to be highly price sensitive. For many purchase decisions, that is indeed the case. Scholarly research has successively demonstrated that the poor are more price sensitive than their wealthier counterparts (Jones, Chern, and Mustiful 1990). However, as João’s example highlights, most consumers on the far-left side of the income distribution are not only short on money. They are also uniquely sensitive to the marketplace cues that threaten one or several dimensions of their social identity. In this paper, we investigate how these two income-covarying forces—perceived social identity threats (SITs) and financial paucity— influence consumers’ sensitivity to the monetary dimension of the target choice. Our research advances the field by documenting when and why consumers from impoverished areas (i.e., hereafter, identity-vulnerable consumers) become, counterintuitively, less price/prize sensitive than their much wealthier counterparts (i.e., hereafter, identity-guarded consumers). We expand the so-called “ghetto tax” (Eckholm 2006) by showing that even when consumers can exert price sensitivity, they often choose not to do so in a systematic attempt to avoid the SITs of the purchase environment where the cheapest option or most valuable prize happens to be located. In doing so, our findings broaden the array of consequences of SITs ( Seibt and Förster 2004; Steele, 1997) while contributing with a new effect to the burgeoning scarcity literature (e.g., Shah, Shafir, and Mullainathan 2015).